As most of you are aware, Unit Linked Insurance Plans (ULIP) combine the advantages of a life insurance policy with the benefits of investments. It allows you to invest in funds of your choice. You can also withdraw a lump sum amount as needed, making the policy more adaptable.
Let us begin by understanding the different types of ULIP withdrawals and how ULIP withdrawals work.
How does the ULIP withdrawal process work?
It is essential to know the meaning of a ULIP in order to understand if it’s serving your requirements. The Insurance Regulatory Authority of India (IRDAI) only recently allowed ULIP policyholders to receive their maturity amount in staggered instalments over the next five years. This change was made for mature policies on or before May 31, 2020.
It was done with the depreciation in the fund value of your ULIP plan in mind due to market volatility caused by the pandemic in mind. Long-term investors who had invested in ULIPs 10-15 years ago were eager to withdraw in a financial emergency. Without this intervention, they would have accepted a lower maturity value.
Various types of ULIP withdrawals available –
1. ULIP withdrawal before the 5-year lock-in period:
It is worth noting that partial withdrawals before the policy lock-in period are not permitted. Even if you intend to surrender or cancel your ULIP policy, you will receive the money once the lock-in period expires.
2. ULIP withdrawal after five years of lock-in:
The partial withdrawal option is available only after an expired five-year lock-in period. However, to take advantage of this ULIP withdrawal after five years feature, you must consider a few things.
Have you made any additional payments to your ULIP plan? If yes, the insurer will settle the ULIP withdrawal from the top-up amount. If you have not made any top-up payments, the amount used for withdrawal is deducted from the base fund value.
Withdrawal from ULIP and life insurance:
People are generally concerned about the impact of ULIP partial withdrawal on life insurance coverage. You might be as well. Most of you are probably wondering if the partial withdrawal facility reduces the sum assured amount upon your demise.
If the withdrawal were made more than two years ago, the sum assured amount would remain unchanged.
There is no such limit on the amount of money you can withdraw. However, as a wise investor, you should leave enough money to cover the cost of the ULIP plan. You must refrain from withdrawing the entire amount or too much of it because this will result in the policy being terminated.
Every insurer has set a limit on the amount withdrawn for this purpose. This limit varies depending on the investor and the ULIP plan. You can withdraw up to 10% of the total premiums paid under a standard ULIP plan.
On the other hand, specific standard plans allow you to withdraw 20% of the total premiums paid. It should be noted that the withdrawal facility is only available after the five-year lock-in period has expired.
Things to consider when withdrawing from a ULIP:
- It would help if you kept a few things in mind before withdrawing from a ULIP. Here’s a look at some of them.
- Before you make a ULIP withdrawal, make sure you understand all of the rules.
- You must pay the premium on time to avoid policy termination and continue to enjoy partial withdrawal in a ULIP.
- After purchasing the policy, make sure you withdraw the ULIP after five years of regular premium payments.
- It would help if you also left enough money to cover the costs of your ULIP investment and account maintenance.
- It would help if you only withdrew from your ULIP in an emergency. This is because a partial withdrawal can reduce the assured sum for two years from when the money is withdrawn.
One last thought:
Pay your premiums in time to continue enjoying the partial withdrawal facility in your ULIP plan. If you fail to pay your premiums, your ULIP benefits will be reduced, and you will be unable to use the partial withdrawal features. You can take advantage of dual benefits, build your wealth over time, and gain tax benefits with the ULIPs available on our platform while protecting yourself and your loved ones. So please don’t put it off. Purchase a ULIP plan today!
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